Covid-19 affects both FinTech and classical banks, but in different ways
While everyone agrees the ongoing health crisis brings a disruption in regular operations of business, one may wonder whether theses events will be favorable to existing financial institutions or to the FinTech. The lockdown, in its diverse forms around the world, has led even the most conservative users to turn to digital solutions. This may lead to a faster digital transformation than initially anticipated, and to a quicker closure of numerous traditional bank branches worldwide.
The FinTech that are in direct competition with classical banks show diverging impacts: UK-based Revolut announced it has dismissed roughly 60 employees due to the coronavirus in order to cut its costs. At the same time, N26, from Germany, laid off 10% of its 90-person New York-based workforce. Both announcements remain extremely limited: Revolut employed 2,200 people globally while N26 has a 1,500 people global workforce.
Nonetheless, investors remain confident in the development of challenger banks. N26 has just raised an additional US$ 100 million (EUR 92 million) funding from existing investors, which led the total funding to the company to date to US$ 770 million (EUR 709 million), setting N26 value at US$ 3.5 billion (EUR 3.2 billion). This new funding will be used to develop the neobank’s operations in its operations in Europe, the US, and Brazil, its next launch target, after N26 pulled out of the UK in February citing the Brexit as the reason. N26, which claims to have over 5 million users, says that the Covid-19 crisis led ATM withdrawals to be cut in half while eCommerce payments soared, especially in the over 65 demography.
Revolut, credited with 10 million customers worldwide, has raised US$ 500 million (EUR 460 million) in funding earlier this year. Revolut which still makes losses announced they plan to become profitable by year end. The company has already expanded in many locations and is said to be in the process of acquiring a bank license in Australia. Based in the UK, Revolut is also operating in the EU: the company which obtained its European banking license in late 2018 from European Central Bank and Bank of Lithuania, is now considering the opening of a bank in Lithuania.
Neobanks growth may be affected by the ongoing health crisis as they cannot yet propose all services regular financial institutions do offer. For instance, as says Guillaume Larmaraud, partner at Colombus Consulting, interviewed by Efma, “For clients, the limits of neobanks suddenly appear, for instance professional clients can’t get the « Prêt Garanti par l’Etat » or state loan’s warranty in France because their neobank did not get the credit agreement and are not allowed to offer this credit to their clients.” On the communication battleground, traditional banks are stressing on their ability to reach customers and deliver customized answers to each situation, especially when it comes to obtaining loans linked with the governmental economic support measures.
On a more global scale, UBS just published a research anticipating Fintech revenues to grow from US$ 150 billion (EUR 138 billion) in 2018 to US$ 500 billion (EUR 460 billion) in 2030.